Friday, June 3, 2016

Suezmaxes at the crossroads

In the Suezmax fleet, there are 89 vessels of over 15 years of age (18% of the current fleet), which is the preferred upper employment limit set by most charterers. 
However, many of the older units are able to trade in the shuttle markets, where age is not so much of an obstacle. Today, 60% of the current Suezmax shuttle fleet is over 15 years old, said Gibson Research in a recent report, following up its recent analysis of the VLCC fleet (see ‘Tanker Operator News’ 13th May).

Older conventional tankers continue to find employment East of Suez, typically loading Middle East cargoes for India or Singapore.

Between 2014-2015, huge investment in new Suezmaxes took the orderbook profile as a percentage of the existing fleet to 24%; the highest of all the tanker newbuilding sectors.

Almost all of the newbuildings are scheduled to be delivered over the next 24 months. But how are these newbuilds going to be absorbed as there appears to be little chance of any withdrawals from the fleet?

Last May, Gibson wrote in the weekly report that “supply appears in check, although robust earnings are likely to lead to a slowdown in demolition activity and that the increase in the Suezmax trading fleet is still expected to be limited”.

We were correct at the time, Gibson said, but the 49 orders placed since last May now paint a different picture.

It appears that geopolitical events have a huge influence on the Suezmax segment, more so than other sectors of the tanker market and the short term prospects appear to be very much under treat.

For example, the loss of West African barrels to the US (TD5) over recent years (although recently enjoying a renaissance) has been substituted with WAF/UKC (TD20) as the crisis in Libyan production continues and is likely to do so for the foreseeable future.

It should be assumed that Libya will one day return to pre-crisis levels in the same way as Iraqi production has returned. Since 2006, Iraqi production has also supported Suezmax demand, with the largest jump in output from 3.3 mill barrels per day seen in 2014 to 4 mill barrels per day recorded last year, which included Kurdish exports through Ceyhan.

However, there is a view that Iraqi production has reached a plateau and may even decline in the short term. The loss of revenues from the low oil price has limited the government’s ability to pay oil companies, who in turn are not investing in Iraq’s infrastructure, which is needed to expand crude exports.

The recent supply disruptions in Nigeria represent another threat to the Suezmax market and again some industry experts are forecasting that the nation’s oil output will drop sharply over the next decade.

Wood Mackenzie, the energy consultancy, has cut its output forecast for Nigeria by more than a fifth, to 1.5 mill barrels per day on average over the next decade, due to uncertainty over promised reforms to the cash-strapped state oil company. This is not related to the militant activity which is currently disrupting exports.

Nigerian production has reached a 20-year low following recent acts of sabotage. Lost output destined for India discharge may in future have to be sourced from the Middle East, which could support the Suezmax market.

Meanwhile, other areas where forecast growth in cargo volumes have not materialised as expected, such as Kozmino and the Caribbean, have taken their toll on Suezmax demand.

The Suezmax market could face some tough challenges over the next few years; not just from the threat of the newbuildings, Gibson concluded.

A full list of Suezmaxes and every tanker of 25,000 dwt and over can be found in the recently published Gibson Tanker Register 2016.

This annual listing takes its usual format with the first section devoted to commercial owners and their vessels, followed an an alphabetical list of all of the tankers included with their basic details.

A CD is included with the printed version, which gives more in-depth information, such as vessels by charterer, tanker pools, vessels by dwt, newbuildings by size group and delivery dates. 

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